Your Mortgage : Fed Gives Buyers Access to Their Appraisals

A key federal agency has put the finishing touches on long-awaited rules governing your rights as a home mortgage borrower to obtain the complete appraisal documents your lender used in deciding whether to approve--or deny--your loan application.

Although first authorized two years ago via amendments to the Equal Credit Opportunity Act, widespread consumer access to home appraisals nationwide has awaited issuance of regulations by the Federal Reserve Board. Before heading home for the holidays, the Fed’s governors did precisely that. The new rules won’t be mandatory for lenders until June 14, but industry experts say many banks and mortgage firms will attempt to comply far sooner.

Here’s a quick overview of what the Fed’s appraisal “bill of rights” means to you. Beginning in the new year, don’t be surprised if the loan company you apply to provides you a copy of your real estate appraisal automatically--without your even requesting it. That’s because the Fed’s new regulation actively encourages banks and mortgage companies to cut red tape and administrative hassles by furnishing appraisal copies to every applicant.

For lenders who choose not to go the automatic route, the Fed requires that a new, written disclosure be delivered to every consumer who applies for a mortgage. The Fed’s wording almost sounds like a reading of Miranda rights: “You have the right to a copy of the appraisal report used in connection with your application for credit.” You have a right to it, the notice goes on, but only if you write for it within 90 days after the lender has informed you of its decision on your loan. Alternatively you can write for it within 90 days after you withdraw your loan application.

Everything clear so far?

For the lender, the new Fed rule answers questions raised by industry and consumer groups during the past 12 months of debate over appraisal disclosures. For instance, it confirms that you not only have a right to the independent appraiser’s official report--paid for by you--but also to any in-house valuation report that caused the lender to assign a higher or lower market valuation than called for by the independent appraiser.

This is particularly important for two reasons: Civil rights investigators have found that when a lender “redlines” or illegally discriminates against borrowers from a geographical area or neighborhood, low-balling on appraisals often plays a key role. Armed with the legal right to see not only the independent appraiser’s evaluation but also in-house modifications to those conclusions, rejected loan applicants may be able to document redlining abuses more readily.

A second advantage: Federal banking regulators have proposed that on home appraisals below $250,000, the use of state-certified, independent appraisers will not be mandatory for lending institutions.

Instead they would be able to rely on unlicensed, in-house “valuators” for data on a property’s market worth. If consumers’ access was restricted solely to third-party, independent appraisal reports, they could be cut off from these potentially crucial in-house appraisals.

A Fed senior attorney, Michael Bylsma, noted that the new rule doesn’t give a consumer carte blanche right to see every shred of paper used by the lender in the valuation process. If a lender conducted a formal review appraisal--essentially a lender’s double-check on the original outside appraisal--the borrower would have no automatic right to that report unless it caused a different final valuation on the property, said Bylsma.

According to the Fed rule, you have the right to see internal staff appraisal documents and notes if they reveal “why the value assigned by the (independent outside) appraiser is not the appropriate valuation.”

How do you find that out, if your mortgage application is turned down for property valuation reasons? You ask. You now have the right to know, and you have the right to see whatever data caused the turndown.

What if you want to get your hands on your appraisal for other reasons--such as reopening the bargaining process with the seller of the property before the deal goes to closing? Say, for example, that the formal appraisal reveals negative factors about the house itself, environmental risks in the area, or neighborhood property value trends that you’d not been aware of? Under the Fed’s new rule, you merely have to file a written request and your lender has to furnish a copy of the appraisal with 30 days after the receipt of your request.

With negotiating skill and the appraisal report in hand, who knows? You could walk away with a lower price on the house or more generous financing terms from the seller. Or you might be able to get out of the contract itself.

The point is: Without the appraisal--now yours by legal right--you might have bought the wrong house for the wrong amount of money.